In the first post of this series, I discussed the importance of vendors having a direct sales effort for going to market with a technical product like storage, and how the VAR channel is ideal for providing that local coverage. In the next two blogs we discussed the kinds of things that motivate VARs to sign up with new vendors and have success selling their products — and the things that don’t. In this final installment we’ll discuss what I like to call the VAR success formula, a strategy for developing strong relationships with good VARs.

When building up an effective VAR channel presence, vendors need to sign up and manage successful programs with VARs. This requires vendors to show value to the VARs they’re working with, ask for those VARs’ commitment to their mutual relationship (and honor that commitment themselves), and then keep score to make sure they’re getting what they need out of the relationship.

Show value

Showing value means providing any of a number of resources that can help VARs capture business. It’s essential that vendors understand that their relationship with a VAR develops only as they close deals — not through sales meetings, technical demos or entertainment events with their VAR partners.

Developing an effective channel program is really a training process, on-the-job training. VARs handle many lines and need to learn the sales and field engineering aspects of each new line. This means working deals together, not attending conference room presentations or webinars. The ideal situation is for the vendor to provide a field sales person and an SE (sales or solutions engineer), but vendors that don’t have local resources can get by with alternatives. For most, it requires at least a vendor inside person dedicated to each VAR and a combination of technical resources. An interactive website is not a substitute. Often, this means a strong technical training program in which the vendor flies VAR SEs in for hands-on experience at the vendor’s headquarters or training facility and then supports them over the phone as they work deals.

The specifics of what the vendor needs to provide depends on their products and their industry, but the bottom line is that vendors must be willing to make an investment in their VAR partners. That’s the value vendors need to show.

Ask for commitment

Make sure that VARs understand the ground rules. They won’t flip a deal – meaning, they won’t sell a competitive product into that account — and the vendor won’t take the deal direct. This is the VAR/vendor prime directive (for those familiar with “Star Trek”). The vendor has made an investment in the VAR and has the right to ask for something in return. This would be a commitment to follow the rules of engagement and for the VAR to reciprocate by making investments as well.

Trust is the currency this relationship trades on, and both sides need to be willing to share. There will be some deals where they’ll compete; perhaps the vendor will be in an account with another VAR or the VAR will be selling a different vendor’s product (often the vendor that brought them into the deal). In terms of investment, the VAR is expected to make a time commitment to the sales process — prospecting, following up requests for information, providing a forecast to the vendor, etc.

Keep score 

Vendors also need to keep track of the deals they’re working with each VAR to make sure the rules of engagement are being followed and that the VAR is reciprocating. After all, this is a two-way street. It doesn’t have to be one-for-one regarding who brings in each opportunity, but there must be an acceptable level of contribution on both sides. Typically, vendors have greater resources, so they provide more leads, but VARs can reciprocate by providing introductions into their existing accounts and by sharing contacts from their calling base. Again, this entire process only works if the trust factor is strong and communication is maintained.

Every company needs to make sure they’re getting an acceptable return on their investment. For vendors, this investment means direct help getting the sales process going and then regular effort to keep the pipeline full and close deals. They can’t expect to build an effective channel presence in the storage space with a few VAR managers who cover the entire country and a road show demo that comes through town once a year. It’s a day-in/day-out process of finding opportunities, working the deals and closing business — in person if possible. Neither the vendor nor the VAR will be able to tell how good a fit the other is until they run that process.

A lot of vendors find out the investment they need to make is greater than first expected, at which point, they either need to find more resources or reduce the number of VARs they actively pursue. If that’s the case, so be it. In the end it’s better to have a few strong partners than a large number of ineffective ones.

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In my two most recent blog entries, I talked about the importance of education in the buying process of technical products and the need for a sales effort to deliver that education. Since VARs provide the end-user sales contact for most vendors in the storage space, it’s important for those vendors to understand how VARs choose them. In the first entry in this series, I discussed how vendors make the jump to the channel. In the last entry I discussed basic parts of a channel program, things that most VARs have come to expect. 

In this entry I’ll focus on the things that go beyond those table stakes. These are some of the things VARs look for in a manufacturer’s product and its channel program. Most storage VARs have a couple dozen vendors on their line cards. A new vendor has to stand out and provide some value, beyond what’s expected.

Get them in the door

VARs make their money penetrating accounts, selling the second and third projects that come up after the one that got them in the door. So products that have a high interest level and can generate appointments are very valuable to have on the line card, even if they don’t themselves bring a lot of revenue or an especially high GP percentage. Many startups with new technologies sell themselves short in the value they can bring by getting VARs in the door.

Get them a sale

Get a deal closed as soon as possible, with one person, and then work on the others. The first deal is critical for a salesperson, not so much because it motivates them, but because it shows them what works. Most VARs have a couple dozen product lines to juggle, and given their turnover rates, a large number of their salespeople are relatively new. People sell what they’re comfortable with, which usually means what they understand. No amount of conference room training will be as effective in this regard as seeing what works with a real customer. This also motivates the other salespeople who haven’t closed a deal because, aside from being competitive, they’ll learn from these first closers.

Invest in them

Demo equipment is nice, but making product available for them to install at a prospect’s site is better. It’s much easier for people to appreciate the value of something they can see, touch and use, rather than just read about. Installing a product and leaving it for the prospect to use (and fall in love with — this is called “the “puppy dog close”) is very effective. People find new and interesting ways to use products, especially in the technology space, and since the VAR did the installation, there’s a low hassle factor for the prospect.

Be selective

If it seems like these are the kinds of things that a vendor can’t do with a large stable of VARs, they’re right. It shouldn’t sign up more VARs than it can support. This means limiting the number of VARs it sets up in a particular geographic region and limiting the total number it signs up altogether. From the VAR perspective, limiting the competition and showing this level of investment is one of the biggest motivators.

In the next and last entry in this series, we’ll talk about what I call the “vendor success formula,” a three-step plan to create profitable, lasting relationships with the VAR channel.

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In the last entry I talked about the need for a certain amount of education in the sales process for storage and related IT equipment. Potential customers have to understand the value proposition in any sales situation, and with larger capital purchases, a direct sales force is a common way to get the required information across. For many companies, but especially smaller ones and startups, VARs offer those “feet on the street.”

The challenge common among vendors first approaching the channel is that they assume they only need to sell the end user — and they forget about selling the VAR. The value proposition a vendor offers a VAR does include the strength of its products’ appeal to end users. But as you well know, there’s much more that goes into the decision of which vendors to work with than simply the demand their products generate with the market.

Most vendor channel management people make assumptions about what motivates the channel to sell their products. This is common since many have never actually been a VAR, reseller or integrator. In these situations they get some of it right and some of it wrong. What I’ve found is that the things that don’t really matter to VARs, or are less important, are often the most surprising to these vendors. For example:

Money

Revenue (margin, gross profit) is the most misunderstood aspect of a product’s appeal to a reseller. It’s certainly important but most often is considered table stakes; VARs assume they’ll make money selling a vendor’s products or those products wouldn’t have been considered in the first place. But a good margin won’t make up for all the other shortcomings a vendor’s channel program might have.

Interactive websites

Vendors are often in love with their online channel resources. These interactive websites have sales collateral, training materials, case studies and white papers in abundance. But VARs typically don’t use them, at least not to the extent that vendors assume they would. The typical VAR has about two dozen vendors to deal with, and they simply don’t have time to learn how to use a website for each one.

Leads

Like money, leads are widely misunderstood by vendors. Yes, they’re important, but many very successful manufacturers never supply traditional leads. Most VARs make their money penetrating accounts, essentially selling multiple products throughout the year, with different projects that come up. While they do need new companies to call on, quality is more important than quantity. An introduction is much more valuable than a name that came from an inside sales cold call or a trade show scanner.

Deal registration

This concept was originally introduced by Qualstar, the economy tape library company, about a dozen years ago. It used to be a big selling point to VARs but is now an expected component of price protection, and most vendors have it.

Relationships

Getting to know channel partners is important, but being friends with a VAR won’t get it to sell a weak product or struggle with an incomplete channel program.

Activities such as lunchtime learning seminars, sporting events and contests have their places in a channel program, but like the other things mentioned in this blog, they’re more support activities.

In the next blog we’ll talk about some specific things that VARs look for in a vendor’s channel program.

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Historically, this has meant a sales process, driven by the vendor’s own sales force or a network of resellers or VARs — or a combination of both. With small vendors, this can be a team of sales and technical people — sometimes the same person. With startup companies, it can be a core of executives and management personnel who are the first to champion the products and technologies, leveraging their own personal networks and expertise to capture the initial customers.

The channel presents an opportunity for vendors to leverage their expertise and produce more of the effective, real-time interaction mentioned above. But how do these companies scale that model and make the jump to really using the channel?

Leveraging the channel means the vendor delegates the job of getting its value proposition across to potential users. It requires that the vendor educate a network of VARs, integrators or resellers who can themselves then go out and educate potential users. But aside from educating, vendors also need to motivate these channel partners to go forth and sell their products. These are VARs who typically have a dozen lines they focus on and another 10 or 20 they regularly interface with.

So in addition to selling the end user, vendors need to sell the VAR as well. They can’t assume that having a strong value proposition for end users automatically means they have a strong value proposition for VARs too. That’s kind of like saying that products will sell themselves.

Creating a strong VAR value proposition takes an understanding of what gets a VAR excited about selling a product. Unfortunately, many vendors make some assumptions about what VARs need and want (like margins) in a product and a channel program. There are a number of factors that VARs will expect (like margins) but that won’t necessarily drive a VAR to really focus on a product. In the next two blogs, we’ll get into some of these details and talk about what kinds of things will and will not motivate you to sell a vendor’s products.

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For a lot of vendors trying to leverage the channel, the answer would seem to be “yes.” As analysts, we take a lot of briefings from companies with new products and new companies trying to sell their first product. I’m always amazed when I hear a vendor say they’re “committed to the channel” and then explain a channel program that was obviously put together without regard to the needs of their channel “partners.” Usually, this is due to a lack of understanding about how VARs and integrators operate and what their overall value proposition is. Oftentimes, these folks have never worked in the channel, and some, it would seem, have probably never dealt with the channel. But there they are, putting together a channel partner program.

When I was a regional manager at a large storage integrator, two examples of this lack of awareness on the part of vendors would come up time and again. (The question that serves as the first line for this blog was a favorite expression of one our SEs.) The first was the collective VAR meeting, where a vendor would set up a nice lunch (oftentimes spending a good sum of money) and invite all the VARs they had in the area. Then they’d dive into their current product line or upcoming program while the VARs in attendance (competitors of one another) would sit there saying nothing. They wouldn’t ask questions when they surely had them, they wouldn’t comment on any sales aspects they found effective and they certainly wouldn’t share any real-world experiences with the group.

The vendor management who typically pushed for these meetings couldn’t understand why the VARs they’d invited to this elaborate function never seemed to participate. It didn’t occur to them that salespeople never want to share their secrets with the competition. They’re not going to stand up and talk about a new application they found, an objection they overcame or even a line they used to get a meeting with a prospect. VARs don’t have the resources, the name recognition or any of the things that vendor reps take for granted. They’re certainly not going to help train their competition.

The second thing that amazed me was how vendors never seemed to grasp the primary value proposition that VARs and integrators bring to the table–namely, the ability to put a system together and to take systems responsibility. This is where the term “integrator” came from in the first place. Every large vendor we worked with would give us the bundle pitch, at least once. They’d put together a package of related products they manufactured and/or had partnership agreements for and try to get VARs excited about the ability to get all these components from one source. Sometimes these vendors would even include their professional services. Every integrator and most VARs live and die by the success of their PS bookings. Except for the occasional situation where they don’t have the expertise for a specific product or are too booked up to get a project done on time, why on earth would they be interested in turning that business over to their vendors? When these bundles were announced, all VAR people in the room would look at one another and roll their eyes–even the competitors, if this was also one of the meetings described above.

Vendors seldom seemed to understand that VARs and integrators actually trade on the complexity of open systems gear. If everything worked, out of the box, VARs would be out of business. I wrote an article recently on integrated IT stacks, the bundled solutions that the big storage and compute vendors are putting together to offer customers complete, plug-and-play virtualization platforms. It discusses this strategy, what the vendors are getting out of it and what it can mean for VARs. I’m assuming these vendors are expecting VARs to get enthusiastic about this “new” product strategy. But I’m pretty sure the reaction will be, “What, are you NEW here?”

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Conley said that two surveys among its reseller base (now at 320 companies in North America) over the past year showed that the company’s partners were happy with CommVault’s products but not so happy with their profitability potential and training. The surveys suggested, Conley said, that the company “fell short on the availability and quality of their technical and sales training.” He said that while CommVault’s not ready to announce exactly how it’ll tweak its margins for its three tiers of partners (platinum, gold and authorized), you can expect more info on that early in 2010. To address the feedback around training, the company has changes on the docket for its sales accreditation program, but nothing in the works right now for its technical certification program.

CommVault also appears to be making strides in its efforts to change its relationship with VARs. “We started out as a very direct company,” he said. “We don’t ever win unless we do a forklift replacement of somebody else’s data management products. So there’s a real direct culture at the company.” But, he said, that’s changing. Evidence: The company’s reliance on the channel is increasing. Conley said that by the end of this fiscal year, it expects to have between 80% and 85% of its revenue coming from indirect sales, compared with somewhere in the 60% range a few years ago. In addition, Conley said that revenue from the channel in North America is up about 50% year over year at the halfway point in CommVault’s fiscal year.